Rare Events (Overweighting of Small Probabilities)

Examples of Decision Weights

"He is tempted to settle this frivolous claim to avoid a freak loss, however unlikely. That’s overweighting of small probabilities. Since he is likely to face many similar problems, he would be better off not yielding."

"We never let our vacations hang on a last-minute deal. We’re willing to pay a lot for certainty."

"They will not cut their losses so long as there is a chance of breaking even. This is risk-seeking in the losses."

"They know the risk of a gas explosion is minuscule, but they want it mitigated. It’s a possibility effect, and they want peace of mind."

Rare Events

I visited Israel several times during a period in which suicide bombings in buses were relatively common—though of course quite rare in absolute terms. There were altogether 23 bombings between December 2001 and September 2004, which had caused a total of 236 fatalities. The number of daily bus riders in Israel was approximately 1.3 million at that time. For any traveler, the risks were tiny, but that was not how the public felt about it. People avoided buses as much as they could, and many travelers spent their time on the bus anxiously scanning their neighbors for packages or bulky clothes that might hide a bomb.

I did not have much occasion to travel on buses, as I was driving a rented car, but I was chagrined to discover that my behavior was also affected. I found that I did not like to stop next to a bus at a red light, and I drove away more quickly than usual when the light changed. I was ashamed of myself, because of course I knew better. I knew that the risk was truly negligible, and that any effect at all on my actions would assign an inordinately high “decision weight” to a minuscule probability. In fact, I was more likely to be injured in a driving accident than by stopping near a bus. But my avoidance of buses was not motivated by a rational concern for survival. What drove me was the experience of the moment: being next to a bus made me think of bombs, and these thoughts were unpleasant. I was avoiding buses because I wanted to think of something else.

My experience illustrates how terrorism works and why it is so effective: it induces an availability cascade. An extremely vivid image of death and damage, constantly reinforced by media attention and frequent conversations, becomes highly accessible, especially if it is associated with a specific situation such as the sight of a bus. The emotional arousal is associative, automatic, and uncontrolled, and it produces an impulse for protective action. System 2 may “know” that the probability is low, but this knowledge does not eliminate the self-generated discomfort and the wish to avoid it. System 1 cannot be turned off. The emotion is not only disproportionate to the probability, it is also insensitive to the exact level of probability. Suppose that two cities have been warned about the presence of suicide bombers. Residents of one city are told that two bombers are ready to strike. Residents of another city are told of a single bomber. Their risk is lower by half, but do they feel much safer?

Many stores in New York City sell lottery tickets, and business is good. The psychology of high-prize lotteries is similar to the psychology of terrorism. The thrilling possibility of winning the big prize is shared by the community and reinforced by conversations at work and at home. Buying a ticket is immediately rewarded by pleasant fantasies, just as avoiding a bus was immediately rewarded by relief from fear. In both cases, the actual probability is inconsequential; only possibility matters. The original formulation of prospect theory included the argument that “highly unlikely events are either ignored or overweighted,” but it did not specify the conditions under which one or the other will occur, nor did it propose a psychological interpretation of it. My current view of decision weights has been strongly influenced by recent research on the role of emotions and vividness in decision making. Overweighting of unlikely outcomes is rooted in System 1 features that are familiar by now. Emotion and vividness influence fluency, availability, and judgments of probability—and thus account for our excessive response to the few rare events that we do not ignore.